The real estate market has been pretty crazy the last year and a half. With homes selling for well over list price many do not appraise for the price that buyers have offered. What does it mean for a buyer when the appraisal is low? And are there ways to protect yourself if your appraisal is low? 

The Appraisal Gap Clause  

In this competitive market, buyers that are able will put in an appraisal gap clause to make their offer more appealing to the sellers. What is an appraisal gap clause and why is this important to the sellers? The appraisal gap clause lets the sellers know ahead of time that if the home appraises for less than the offered amount, the buyers will bring extra cash to the table to make up the difference. This could be a specific amount, or as we are often seeing these days, buyers will offer to make up any difference needed. 

For example, if a buyer offers $550,000 on a second home in Vail with 5% down, the amount that they would finance would be $522,500. If the home is appraised for less, say only $500,000, the lender will only lend 95% of the appraised amount, which would be $475,000. If there was a full appraisal gap written into the contract, it means that instead of the $27,500 that the buyers originally expected to bring to closing, the buyers will need to bring $75,000 in cash to closing to make up that difference. Without an appraisal gap of $75,000 or more, there would be an opportunity for a skilled negotiator to negotiate with the sellers to lower the price accordingly. This brings me to my next point. The benefits of working with an experienced Realtor!

Benefits of Working With a Seasoned Agent

If you are purchasing a home and the appraisal comes back low, your real estate agent will be able to review the appraisal for errors and up-to-date comps (similar homes that have recently sold in that location). With your permission, your lender can ask the listing agent to review the appraisal for errors as well. 

As a listing agent, prior to the appraiser’s visit, it’s important to share a list of improvements for the home as well as multiple offers at the higher price, along with recently sold homes of similar size and features within the neighborhood. Whether representing the seller or the buyer, I will always advocate and negotiate for my clients. A seasoned agent will be able to guide you through this process. 

How Can I Help?

I hope that you’ve found this information on appraisals useful. Please reach out to me if you ever want to know more or if you are interested in buying or selling a home. I want to provide my clients with interesting and up-to-date information so they can make informed decisions. If you think that my expertise and positive attitude might be of service to you don’t hesitate to reach out and contact me.

Would you like more information on the Vail Valley/Cordillera area or the real estate market specifically? To receive my detailed monthly market report immediately, click here!

Robert Schilling
Coldwell Banker Global Luxury Specialist
Coldwell Banker Distinctive Properties
(970) 390-0705